US home sales slipped 1.5 percent in May and Rate on 30-year mortgage falls to record low

This post contains two different articles, but, to me, the articles are very much related to each other.

Early on, not long after I began Reprographics 101, I put forth the opinion that a decline in the housing market (“residential” design / development and construction the housing market) would eventually lead to problems in the commercial (“non-res”) market, and, sadly, that did happen …. leading to a recession (I still refer to it as a “depression”) in the “overall” A/E/C Industry and, of course, that had a very negative impact on firms involved in the reprographics industry. I’ve said before, and I’ll say it again, I don’t think our economy, overall, is going to fully recover unless and until the “housing market” first bottoms out, and I don’t think that we’ve yet bottomed out. And, I say that because of two reasons; #1 – there are still huge numbers of families underwater on their mortgages; there will be another wave of foreclosures, #2 – banks (and others who hold mortgages) have not yet written down (admitted) all of their problem loans. Add to that the fact that getting a loan is now much more difficult than it used to be (and I would add, more difficult than it should be), so even people who have decent credit aren’t finding it easy, or going to find it easy, to mortgages. Rates on mortgages are now at an all-time-low, but that’s because demand for mortgages must also be at an all-time-low.

In my view, we have two choices: (a) continue to let these problems linger, and, if we do that, the recession in the “residential” construction industry may endure for three, four or five more years, or (b) convince the banking industry to very quickly to complete all foreclosures and move quickly to sell all REO properties at whatever prices those properties will bring, even if that means more hits to bank balance sheets. The sooner we get to the bottom, the sooner a real recovery can begin to take shape. Our country's unemployment numbers don't have any chance of significantly improving until the housing market (and all of the business related to that market) begin to improve.

There were two or three articles in the NY Times yesterday (Sunday), in the business section, about mortgages and our anemic economic growth, and I’d encourage you to pick up a copy of yesterday’s Times. The articles that appear below are not from the NY Times, they are articles I found on-line.

1st ARTICLE:

US home sales slipped 1.5 percent in May

Published June 21, 2012, by Associated Press

WASHINGTON – Americans bought fewer homes in May than April, suggesting a sluggish job market could threaten a modest recovery in housing.

The National Association of Realtors said Thursday that sales of previously occupied homes dropped 1.5 percent in May from the previous month to a seasonally adjusted annual rate of 4.55 million.

Sales have risen 9.6 percent from a year ago, evidence that home sales are slowly improving. Still, the pace has fallen since nearly touching a two-year high in April and it remains well below the 6 million that economists consider healthy.

The monthly decline follows a report that employers added the fewest jobs in May in a year. Weaker hiring has slowed the broader economy and could lead some to reconsider buying a home, even with record-low mortgage rates.

"Not a surprise that existing home sales took a step back in May," said Jennifer Lee, a senior economist at BMO Capital Markets. Lee noted that the level of home sales is still "descent." But she said "softening job growth could slow the housing recovery."

First-time buyers, who are critical to a recovery, made up just 34 percent of sales in May. That's down slightly from 35 percent in April. In healthy market, the number is more than 40 percent.

One positive sign: The supply of homes for sale remains low. The inventory of unsold home in May was just 2.49 million, roughly the same level as April. It would take little more than six months to exhaust the supply at the current sales pace, a ratio last seen in 2006 when the housing market was booming.

A low supply typically encourages more people to put homes up for sale. That generally improves the overall quality of the homes on the market, which drives prices higher.

The median price for a home sold in May was $182,600, up 5.1 percent from $173,700 in April. It was the highest median price since June 2010 — when sales benefited from a federal home-buying tax credit.

Home sales neared a two-year high in April, adding to other signs of modest improvement in the industry nearly five years after the housing bubble burst.

Builders are more confident and are starting to build more homes. The government reported Tuesday that builders started work on more single-family homes in May and requested the most permits to build homes and apartments in 3 and a half years.

Sales rose 1 percent in the Midwest, the only region to show an increase. Sales fell 4.8 percent in the Northeast, 3.4 percent in the West and 0.6 percent in the South.

2nd ARTICLE:

Rate on 30-year mortgage falls to record low

By Marcy Gordon, Associated Press (also published on June 21^st)

WASHINGTON – The average rate on a 30-year fixed mortgage fell this week to a record low for the seventh time in eight weeks.

Cheap mortgages have helped drive a modest recovery in the weak housing market this year.

Mortgage buyer Freddie Mac said Thursday that the average on the 30-year loan dropped to 3.66% from 3.71% last week. It's the lowest rate since long-term mortgages began in the 1950s.

The average rate on the 15-year mortgage, a popular refinancing option, declined to 2.95%. That's down from 2.98% last week and just above the record 2.94% of two weeks ago.

The rate on the 30-year loan has been below 4 % since December.

Low rates could provide some help to the economy if more people refinance. When people refinance at lower rates, they pay less on their loans and have more money to spend.

Still, the pace of home sales remains well below healthy levels. Sales of previously occupied homes dipped in May to a seasonally adjusted annual rate of 4.55 million, although they are up from the same month last year.

Many people are still having difficulty qualifying for home loans or can't afford larger down payments required by banks. Some would-be home buyers are holding off because they fear that home prices could keep falling.

Mortgage rates have been dropping because they tend to track the yield on the 10-year Treasury note. Uncertainty about how Europe will resolve its debt crisis has led investors to buy more Treasury securities, which are considered safe investments. As demand for Treasurys increase, the yield falls.

And the yield will likely fall even lower now that the Federal Reserve has said it will continue selling short-term Treasury securities and using the proceeds to buy longer-term Treasurys. That goal of the program is to drive long-term interest rates lower to encourage more borrowing and spending.

To calculate average rates, Freddie Mac surveys lenders across the country Monday through Wednesday each week.

The average does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for 30-year loans was 0.7 point, unchanged from last week. The fee for 15-year loans was 0.6 point, down from 0.7.

The average rate on one-year adjustable rate mortgages fell to 2.74% from 2.78% last week. The fee for one-year adjustable rate loans was unchanged at 0.5 point.